Under the five-year contract, Macmahon will provide drill and blast services, overburden removal, ore harvesting, maintenance of equipment and associated services at the mine in Western Australia's Pilbara region.

The contract miner has hired 600 workers for the project, with 500 already on site.

Macmahon chief executive Ross Carroll said the contract brought the company's mining order book to $3.6 billion, the highest level in its history.

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"This is an exciting project that builds on the existing success of our surface mining operations, securing a stronger foundation for the company's mining-focused business over the next five years," he said in a statement on Tuesday.

Macmahon expects to draw on its recent equity raising to help fund the $30 million it believes it will spend while working on the mine expansion project.

Fortescue chief executive Nev Power said the Christmas Creek expansion was a key component of the company's expansion plan to produce 155 million tonnes of iron ore per annum by December 2013.

News of the deal comes weeks after Macmahon agreed to sell its construction arm to its biggest shareholder, Leighton Holdings, for $20 million.

However, it has been fending off a rival $25 million offer for the business from India's Sembawang in recent weeks.